20 Journal Entry Examples Every Bookkeeper Should Know
Understanding journal entries is one of the most important skills in accounting and bookkeeping. Every financial transaction — a sale, rent, a new laptop, a bank loan — has to be recorded correctly, and for beginners the hardest part is almost always knowing which account to debit and which to credit. This guide walks through 20 of the most common transactions businesses record every day, each one broken down into a plain-English scenario, the correct entry, why it's correct, and a practical tip.
Quick Answer
A journal entry is the first formal record of a financial transaction in the accounting system. Every entry follows the double-entry principle — every debit must have an equal, offsetting credit — so the accounting equation always stays in balance:
Assets = Liabilities + Owner's Equity→ Jump to Any Example
- 01. Cash Sale
- 02. Credit Sale
- 03. Purchase Inventory (Cash)
- 04. Purchase Inventory (Credit)
- 05. Paying Office Rent
- 06. Paying Employee Salaries
- 07. Receiving Customer Payment
- 08. Paying a Supplier
- 09. Equipment for Cash
- 10. Equipment on Credit
- 11. Recording Depreciation
- 12. Owner Invests Cash
- 13. Owner Withdraws Cash
- 14. Receiving a Bank Loan
- 15. Repaying a Bank Loan
- 16. Receiving Unearned Revenue
- 17. Recognizing Earned Revenue
- 18. Paying Insurance in Advance
- 19. Recording Insurance Expense
- 20. Recording Interest Expense
Quick Reference Table
| Transaction | Debit | Credit |
|---|---|---|
| Cash Sale | Cash | Sales Revenue |
| Credit Sale | Accounts Receivable | Sales Revenue |
| Purchase Inventory for Cash | Inventory | Cash |
| Purchase Inventory on Credit | Inventory | Accounts Payable |
| Pay Office Rent | Rent Expense | Cash |
| Pay Employee Salaries | Salaries Expense | Cash |
| Receive Payment from Customer | Cash | Accounts Receivable |
| Pay Supplier | Accounts Payable | Cash |
| Purchase Equipment for Cash | Equipment | Cash |
| Purchase Equipment on Credit | Equipment | Accounts Payable |
| Record Depreciation | Depreciation Expense | Accumulated Depreciation |
| Owner Investment | Cash | Owner's Capital |
| Owner Withdrawal | Drawings | Cash |
| Receive Bank Loan | Cash | Bank Loan Payable |
| Repay Loan | Bank Loan Payable | Cash |
| Receive Unearned Revenue | Cash | Unearned Revenue |
| Record Earned Revenue | Unearned Revenue | Sales Revenue |
| Pay Insurance in Advance | Prepaid Insurance | Cash |
| Record Insurance Expense | Insurance Expense | Prepaid Insurance |
| Record Interest Expense | Interest Expense | Interest Payable / Cash |
Before You Begin: Debit and Credit Basics
The biggest beginner myth is that debit means "good" and credit means "bad." In reality, debit and credit just describe which side of an account is affected. Remember these six rules and you can analyze almost any transaction:
Cash Sale
A retail store sells goods for $1,000 in cash.
The business receives cash — an asset — so Cash is debited. It also earns revenue from the sale, which increases owner's equity and is credited. Total debits equal total credits, so the entry balances.
Credit Sale
A company sells products worth $2,500 on credit. The customer will pay later.
Although cash hasn't been received yet, revenue has been earned. Instead of increasing Cash, the company increases Accounts Receivable — an asset representing money owed by customers.
Purchase Inventory for Cash
A business purchases inventory costing $3,000 and pays immediately in cash.
Inventory is an asset, so buying it increases assets and is debited. Cash decreases immediately, so it's credited. One asset increases while another decreases — the equation stays balanced.
Purchase Inventory on Credit
A wholesaler purchases inventory worth $8,000 but agrees to pay the supplier next month.
The company receives inventory immediately, so its asset increases. Because payment hasn't been made, it also picks up a liability to the supplier, so Accounts Payable is credited.
Paying Office Rent
The business pays $1,200 in monthly office rent.
Rent is an expense, and expenses increase with debits. Cash decreases because it's paid immediately, so it's credited. This ensures rent shows up correctly on the Income Statement.
Common Mistake to Avoid
Paying Employee Salaries
A business pays $4,500 in employee salaries by bank transfer.
Salaries are an operating expense, so Salaries Expense is debited. The payment reduces cash, so Cash is credited. This expense reduces net profit for the period on the Income Statement.
Receiving Payment from a Customer
A customer pays $2,500 to settle a previous credit sale.
Cash increases as the customer pays, while Accounts Receivable decreases since they no longer owe the business. No revenue is recorded here — it was already recognized at the original sale.
Paying a Supplier
The business pays $3,200 to a supplier for inventory purchased on credit.
Paying the supplier reduces the outstanding liability, so Accounts Payable is debited. Cash decreases because payment is made immediately.
Purchasing Equipment for Cash
A business purchases office equipment costing $10,000 and pays immediately.
Equipment is a long-term asset that provides benefit across multiple periods, so it's debited. Cash decreases immediately. Unlike supplies or utilities, equipment is capitalized, not expensed right away.
Purchasing Equipment on Credit
A company purchases machinery worth $25,000 on credit from a supplier.
The company acquires a long-term asset, so Equipment is debited. Since payment hasn't been made, a liability to the supplier is recorded via Accounts Payable.
Quick Knowledge Check
Looking back at the first ten examples, some patterns emerge:
- Asset accounts (Cash, Inventory, Equipment, Accounts Receivable) increase with debits.
- Expense accounts (Rent Expense, Salaries Expense) also increase with debits.
- Liability accounts (Accounts Payable) increase with credits.
- Revenue accounts increase with credits.
Recognizing these patterns beats memorizing individual entries — once you know how each account type behaves, you can analyze any new transaction with confidence.
Recording Depreciation
A company owns office equipment that cost $12,000. At year-end, it records $1,200 of depreciation expense.
Depreciation allocates the asset's cost over its useful life. Rather than reducing Equipment directly, the credit goes to Accumulated Depreciation, a contra-asset account that offsets the asset's carrying value.
Owner Invests Cash into the Business
The owner contributes $20,000 in cash to start or expand the business.
The business receives cash, increasing the Cash account. The owner's investment also increases owner's equity, so Owner's Capital is credited. No revenue is recorded — the money comes from the owner, not customers.
Owner Withdraws Cash (Drawings)
The owner withdraws $2,000 from the business for personal use.
The withdrawal reduces owner's equity, so it's posted to Drawings rather than an expense account. Cash decreases as the money leaves the business.
Receiving a Bank Loan
A business receives a $50,000 loan from its bank.
Cash increases as the loan is received. The business is now obligated to repay it, creating a liability, so Bank Loan Payable is credited. This is a Balance Sheet transaction only — it creates no income.
Repaying Part of a Bank Loan
The business repays $5,000 of the loan principal.
Repaying the loan reduces the liability, so Bank Loan Payable is debited. Cash decreases as payment is made. If the payment includes interest, that portion is recorded separately as Interest Expense.
Midway Review: What You've Learned So Far
| Category | Examples Covered | |
|---|---|---|
| Sales Transactions | Cash Sale, Credit Sale | |
| Inventory Transactions | Cash Purchase, Credit Purchase | |
| Operating Expenses | Rent, Salaries | |
| Customer & Supplier Payments | Collections, Supplier Payments | |
| Fixed Assets | Equipment Purchases, Depreciation | |
| Owner's Equity | Capital Contribution, Drawings | |
| Financing Activities | Bank Loan Received, Loan Repayment | |
The Common Pattern Behind Every Journal Entry
Receiving Unearned Revenue
A customer pays $3,000 in advance for services to be provided over the next three months.
Cash increases immediately. But since the services haven't been provided yet, the business hasn't earned the revenue — it records a liability, Unearned Revenue, representing the obligation to deliver later.
Recognizing Earned Revenue
One month later, the business provides $1,000 worth of the services paid for in advance.
The liability decreases as part of the obligation is fulfilled. The business has now earned revenue, so Service Revenue is credited — recognizing income in the correct period.
Paying Insurance in Advance
A company pays $2,400 for one year of insurance coverage.
The payment provides future economic benefit, so it's recorded first as an asset, Prepaid Insurance. Cash decreases as payment is made. The expense is recognized gradually as coverage is used.
Recording Insurance Expense
At the end of the first month, $200 of the prepaid insurance has been used.
The business has consumed one month of coverage. The prepaid asset decreases while Insurance Expense increases — matching the expense to the period the benefit was used.
Recording Interest Expense
At month-end, a business owes $300 in interest on a bank loan, but hasn't paid it yet.
The expense has been incurred even though it hasn't been paid, so Interest Expense is debited. Since the amount is still owed, Interest Payable is credited to record the liability.
Common Journal Entry Mistakes
Pro Tips for Recording Journal Entries
- Always review the supporting source documents before recording a transaction.
- Identify the accounts affected before thinking about debits and credits.
- Understand whether each account is increasing or decreasing.
- Apply the normal balance rules for each account type.
- Verify total debits equal total credits before posting.
- Review unusual or high-value entries with supporting documentation.
- Perform regular reconciliations to catch errors early.
Frequently Asked Questions
A journal entry is the first formal record of a business transaction in the accounting system. It records the accounts affected and ensures total debits equal total credits.
They're the foundation of the accounting cycle, ensuring transactions are recorded accurately before being posted to the general ledger and used to prepare financial statements.
Double-entry accounting requires every transaction to affect at least two accounts. Every debit must have an equal, corresponding credit, keeping the accounting equation balanced.
Most entries affect at least two accounts, but more complex transactions may involve three or more while still keeping debits and credits equal.
Yes — modern accounting software can generate many entries from invoices, bills, bank feeds, and payroll, but accountants should still review them for accuracy.
Key Takeaways
- Journal entries are the foundation of the accounting cycle.
- Every journal entry must balance, with total debits equal to total credits.
- Understanding account types matters more than memorizing individual entries.
- Real-world practice is the fastest way to build confidence recording transactions.
- Reviewing common examples helps beginners recognize patterns and apply the rules correctly.
Final Thoughts
Journal entries can feel challenging at first, but every transaction follows the same logical process: identify the accounts involved, determine whether each one increases or decreases, apply the debit and credit rules, and confirm that total debits equal total credits. The 20 examples above cover many of the transactions businesses record every day — practicing them regularly builds a solid foundation for more advanced bookkeeping and financial reporting. Whether you're a student, an aspiring bookkeeper, or a small business owner, mastering journal entries is a key step toward accounting confidence.
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Ishara Vithana is a senior finance professional with over two decades of experience in accounting, bookkeeping, and small business finance. He is a Xero Certified Advisor and Partner, Dext Certified Expert, Fathom Advisor, and Tally Prime expert. Through Finance Made Simple, he helps small business owners and DIY bookkeepers understand accounting, bookkeeping, and business finance with practical, easy-to-follow guides. Connect with Ishara →
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